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Obama Leans on G.O.P. for a Deal on Debt Ceiling

WASHINGTON — President Obama tried on Sunday to revive the chances for a sweeping budget agreement to reduce the nation’s deficit and repair its perilous finances, but Congressional Republicans continued to balk, insisting on a more modest deal to avert a default on the national debt.

Mr. Obama, meeting with leaders from both parties at the White House, bluntly challenged Republicans a day after Speaker John A. Boehner pulled back from a far-reaching agreement aimed at saving as much as $4 trillion over 10 years, officials briefed on the negotiations said. The meeting ended after an hour and 15 minutes with little progress, but the two sides agreed to resume talking Monday, and every day after that, until a deal is done.

White House officials said Mr. Obama was still determined to pursue the boldest package possible — one that would require new tax revenue as well as cuts in Medicare and other entitlement programs — but he faces steadfast opposition from Republicans and growing qualms among Democrats.

“Congress has to act,” Treasury Secretary Timothy F. Geithner said on the CBS News program “Face the Nation.” “If they don’t act, then we face catastrophic damage to the American economy, and the leadership, to their credit, and I mean Republicans and Democrats, fully understand that.”

Mr. Geithner, noting that the Treasury issues 80 million checks a month, including Social Security payments to 55 million Americans, warned that failure to reach an agreement within the next two weeks could be calamitous. Delivering a version of the lecture he gave to the lawmakers at the White House last week, Mr. Geithner said a default would unhinge financial markets, drive up interest rates, and derail the economic recovery.

Mr. Obama, who arrived from Camp David shortly before the Sunday evening session, appeared to have made headway in at least one regard: lawmakers from both parties pledged not to let the United States default on its debt. That is what the Treasury said would happen after Aug. 2, when the government would lose its authority to borrow.

“Nobody is talking about not raising the debt ceiling; I haven’t heard that discussed by anybody,” the Senate minority leader, Mitch McConnell of Kentucky, said on “Fox News Sunday,” adding that he had an unspecified “contingency plan” to raise the ceiling if the talks fell apart.

Photo

Sunday's meeting produced an agreement to meet on Monday.Credit
Doug Mills/The New York Times

Just as Mr. Obama was sitting down with Mr. McConnell and other leaders shortly after 6 p.m. on Sunday, with the men wearing open-collar shirts and blazers, he was asked whether he could get a deal done in 10 days, leaving enough time to draft and pass legislation before Aug. 2.

“We need to,” he replied.

The problem for Mr. Obama is that Republicans are not budging on their demand that any deal include no tax increases. The administration also needs Democratic lawmakers, but for many of them, it will be impossible to vote for a package composed entirely of spending cuts, especially to popular programs.

In a statement after the meeting, Mr. McConnell’s spokesman, Don Stewart, said, “It’s baffling that the president and his party continue to insist on massive tax hikes in the middle of a jobs crisis.”

The House minority leader, Nancy Pelosi, said she favored a large deal but that it “must do no harm to the middle class or to economic growth. It must also protect Medicare and Social Security beneficiaries.”

It was not clear that the president would be able to reconcile these positions, especially after Mr. Boehner set a lower bar for a deal that both parties might find more palatable. In a statement issued after the meeting, Mr. Boehner said the leaders should aim for a midrange deal that would build on spending cuts identified in talks led by Vice President Joseph R. Biden Jr. Such a deal might produce savings of $2 trillion to $3 trillion over a decade.

Mr. Boehner appeared subdued at the meeting, officials said, letting the House majority leader, Eric Cantor of Virginia, do most of the talking. Mr. Cantor reiterated his opposition to a bigger deal.

Privately, some in Congress expressed regret at Mr. Boehner’s decision on Saturday to walk away from an agreement that they said would have been a rare opportunity for Republicans and Democrats to radically restructure the government’s finances, rewrite the tax code and fix longstanding problems with Medicare and Medicaid.

In the end, officials briefed on the talks said, ideological differences over a tax overhaul bogged down the bigger agreement. Mr. Boehner, they said, was open to letting Bush-era tax cuts for wealthy people expire, while maintaining the cuts for middle-income wage-earners. But Democrats briefed on the talks said he made that contingent on rewriting the tax code by the end of this year, so that the loss of the cuts would be offset by lower overall tax rates.

The White House, officials said, was willing to put a deadline on a tax overhaul. But it rejected Mr. Boehner’s formula, arguing that it would place too much of a burden on the middle class while protecting the rich.

A Republican official familiar with the negotiations said Mr. Boehner “would only discuss new revenues if they came from economic growth and tax reform instead of tax increases.” And he insisted on a “trigger” that would set off deep spending cuts and other measures if the tax changes were not implemented before the end of 2011.

Mr. Boehner and the White House, Democratic officials said, also disagreed over the scope of cuts to entitlement programs, with the speaker demanding deeper cuts in Medicare and Medicaid than the administration was willing to accept.

Mr. Obama is pushing for a bigger deal on the argument that it will, paradoxically, be easier for Democrats and Republicans to sell to their rank and file, because they could present it as a historic effort to begin undoing years of deficit spending.

As Mr. Geithner said on “Face the Nation,” “It’s not clear that it’s easier trying to do less.”

Indeed, the hurdles to even a $2 trillion deal are numerous and significant, officials briefed on the negotiations said. During several rounds of talks led by Mr. Biden, the two sides identified spending cuts, and lower interest payments that would result from a reduction of the debt, which would have saved about $1.8 trillion over 10 years. But officials cautioned that there was never a deal.

Republicans, led by Mr. Cantor, rejected proposals to close loopholes or other tax breaks for owners of corporate jets, oil and gas companies and hedge funds. They said these measures, which would have raised about $130 billion, amounted to tax increases.

The administration has also proposed limiting deductions for high wage-earners, which the White House says would raise $290 billion. But there is little support for that in Congress. And if there are no tax measures in the deal, the leaders say, they will not be able to corral enough Democratic votes to pass it.

Mr. Geithner’s warnings about the high stakes were echoed by Christine Lagarde, the newly appointed managing director of the International Monetary Fund. Speaking on “This Week” on ABC, Ms. Lagarde said that a default by the United States would cause “interest hikes, stock markets taking a huge hit, and real nasty consequences, not just for the United States, but for the entire global economy.”

Carl Hulse and Gardiner Harris contributed reporting.

A version of this article appears in print on July 11, 2011, on page A1 of the New York edition with the headline: Obama and G.O.P. Remain at Odds On Deficit Deal. Order Reprints|Today's Paper|Subscribe